Google would launch a new operating system for computers to challenge Microsoft

SUN VALLEY, Idaho (Reuters) – Google Inc plans to attack Microsoft Corp’s core business by taking on the software giant’s globally dominant Windows operating system for personal computers. Google is developing an operating system (OS) for personal computers, in a direct challenge to market leader Microsoft and its Windows system.

Google said netbooks with Chrome OS could be on sale by the middle of 2010.

Speed, simplicity and security are the key aspects of Google Chrome OS,” the firm said in its official blog.

The operating system, which will run on an open source licence, was a “natural extension” of its Chrome browser, the firm said.

The news comes just months before Microsoft launches the latest version of its operating system, called Windows 7.

Google, which already offers a suite of e-mail, Web and other software products that compete with Microsoft, said on Tuesday it would launch a new operating system that will initially be targeted at netbooks.

Microsoft shares fell 1.4 percent to $22.22 in early Nasdaq trade on Wednesday. Google shares rose 1.2 percent to $401.36.

Google and Microsoft have locked horns over the years in a variety of markets, from Internet search to mobile software. It remains to be seen if Google can take market share away from Microsoft on its home turf, with Windows currently installed in more than 90 percent of the world’s PCs.

The news comes as executives from the world’s biggest technology and media companies, including Google and Microsoft, gather in Sun Valley, Idaho for an annual conference organized by boutique investment bank Allen & Co.

A spokesman for Microsoft declined to comment.

Key to success will be whether Google can lock in partnerships with PC makers, such as Hewlett-Packard Co and Dell Inc, which currently offer Windows on most of their product lines.

Hewlett-Packard Co , the world’s largest PC brand, declined to confirm if it would sell PCs running on the new operating system.

“We are looking into it” said HP spokeswoman Marlene Somsak, referring to the operating system. “We want to understand all the different operating systems available to customers, and will assess the impact of Chrome on the computer and communications industry.”

Google’s Chrome Internet browser, launched in late 2008, remains a distant fourth in the Web browser market, with a 1.2 percent share in February, according to market research firm Net Applications. Microsoft’s Internet Explorer continues to dominate with nearly 70 percent.